Cryptocurrencies and Taxes!

Last Updated: 21. Februar 2024By

When trading with cryptocurrencies, profits must be taxed under certain circumstances. And beware: Through an information request to a crypto trading platform, the tax authorities of North Rhine-Westphalia received data from numerous users last year. The Lohnsteuerhilfeverein Vereinigte Lohnsteuerhilfe e.V. (VLH) explains in a recent publication what is behind this. Founded in 1972, VLH is Germany’s largest wage tax assistance association with over one million members and around 3,000 consulting offices nationwide.

Important: The following explanations refer to the current tax law in Germany and should certainly not be interpreted as tax advice.

Are profits from cryptocurrencies properly taxed? In 2023, the North Rhine-Westphalian tax authorities for the first time and as the first German tax authority ever submitted a so-called information request to a crypto trading platform. As a result, they received data from numerous users who trade with cryptocurrencies on this platform. And it is expected that the North Rhine-Westphalian tax authorities will also make the data packages available to the tax authorities of other federal states.

According to its own information, the tax investigation department of North Rhine-Westphalia is the largest German tax investigation department with over 600 investigators in ten tax offices for tax criminal matters and tax investigations. And they evaluate the data provided by the crypto trading platform to identify „black sheep“ – i.e. users who do not declare their profits at all or not correctly or completely.

Cryptocurrencies are considered as assets for tax purposes Whether it’s Bitcoin, Ethereum, or any other cryptocurrency: digital coins are not considered legal tender for tax purposes, but as assets. As a result, profits from buying and selling are subject to income tax if the holding period is not more than one year. In other words: Then the profits from the sale are subject to income tax. In return, losses can also be declared. These are then determined separately and can be offset against profits from private sales transactions in later years.

The profits must be declared as income in the tax return – but so far the tax offices have had to rely on the honesty of taxpayers. With the data now received from the crypto trading platform, they can check whether profits have actually been declared. If this is not the case, serious consequences can be expected for those affected – in the worst case, a report for tax evasion.

Taxable or tax-free: Holding period of the cryptocurrency is crucial If someone buys cryptocurrencies, holds them for more than a year and only then sells them, they do not have to pay taxes on the profits from the sale. In other words: In this case, the capital gains are tax-free. But: If interest is earned with the cryptocurrency, capital gains tax is due for these interest.

If someone holds Bitcoin, Ethereum & Co. for only a few months and then sells or exchanges them at a profit, this profit must be taxed at their personal tax rate. There is at least a threshold for this: Private sales transactions of less than 600 euros per year remain tax-free. But beware: If the profit is only one euro above the threshold, the entire sales profit must be taxed. Because it is a threshold, not a tax exemption.

Example: If the sales profit from cryptocurrencies is 590 euros in one year, it remains tax-free. However, if the profit is 620 euros, the entire 620 euros must be taxed – and not just the part above the threshold of 600 euros.

Note: According to the plans of the federal government, the threshold for private sales transactions is to be retroactively increased to 1,000 euros from January 1, 2024. However, these plans are part of the Growth Opportunities Act, which is still stuck in the mediation committee.

My recommendation: Use helpful tax trackers! Please also consider your tax rights and obligations in connection with cryptocurrencies. Use tax tracking programs to record and document your transactions with Bitcoin, Ethereum & Co.!